Sonae : SGPS, SA - 1H19 Report and Accounts

SONAE

FIRST HALF

RESULTS'19

Highlights and CEO message

• Consolidated turnover registered double-digit growth (+11% y.o.y.) and reached €2,985 M in the first half of the year
• Underlying EBITDA reached €243 M (+24% y.o.y.), which represents a solid margin of 8.1%
• Financial structure remained solid, despite the significant increase in total investment, with gearing decreasing y.o.y. to 0.5x

"Sonae had a very positive first half of the year, with strong growth, profitability improvements and important milestones in terms of portfolio management.

Consolidated turnover grew 11.0% y.o.y. to €2,985 M, with a particularly strong contribution from Sonae MC, solid growth at Sonae IM, and a better performance of Worten and Sonae Fashion in the second quarter. Non-consolidating businesses also posted very positive top line evolutions, especially MDS and ISRG, both with strong double-digit growth. These results give us great comfort that the value propositions of our businesses are being truly appreciated by our customers.

Underlying EBITDA increased 24.4% to €243 M, with Sonae MC maintaining its benchmark profitability level and Sonae Fashion improving its margins on the back of higher sales and its ongoing transformation programme. Total EBITDA grew 10% y.o.y. despite the challenging comparable of 2018, marked by the capital gain of the Outsystems transaction.

Regarding portfolio management, in the quarter Sonae Sierra Brasil reached a final merger agreement with Aliansce Shopping Centers to create the largest shopping centre operator in Brazil. Also in the second quarter Sonae IM continued to invest in technology-based companies and, already in July, announced the agreement with Mobileum to sell WeDo. This transaction illustrates Sonae IM's value creation model and we are confident that, under the new ownership, WeDo will be able to continue its growth trajectory in years to come.

Given this set of results, the robustness of our value propositions and the strength of our management teams, we remain confident that 2019 will be a very positive year for Sonae."

Cláudia Azevedo, Sonae CEO

Sonae _ 1H Results '19 | 02

Sonae consolidated performance

Sonae corporate structure

				Stake	Consolidation method
Sonae MC				100%		Full consolidation
Worten				100%		Full consolidation
Sonae Fashion				100%		Full consolidation
ISRG				30%		Equity method
Sonae FS				100%		Full consolidation
Sonae IM				90%		Full consolidation
Sonae Sierra				70%		Full consolidation
NOS				23%		Equity method
Sonae consolidated results
Million euros	1H18(1)	1H19	y.o.y.	2Q18(1)	2Q19	y.o.y.
Turnover	2,690	2,985		11.0%	1,348	1,525	13.1%
Underlying EBITDA	195	243		24.4%	105	140	32.8%
margin	7.3%	8.1%		0.9 p.p.	7.8%	9.2%	1.4 p.p.
Equity method results (2)	27	52		94.9%	15	25	71.2%
Non-recurrent items	37	-11		-	37	-18	-
EBITDA	259	284		9.6%	158	148	-6.4%
margin	9.6%	9.5%		-0.1 p.p.	11.7%	9.7%	-2.0 p.p.
Provisions and impairment losses	-3	-3		23.7%	-3	-2	36.8%
D&A	-100	-105		-5.8%	-50	-53	-6.0%
D&A - RoU	-46	-61		-33.3%	-23	-35	-51.4%
EBIT	110	115		4.1%	81	57	-29.4%
Net financial results - lease liabilities	-31	-36		-16.0%	-15	-18	-13.1%
Net financial results - financing	-15	-21		-45.7%	-7	-11	-51.8%
EBT	65	58		-10.9%	59	29	-50.5%
Taxes	-9	-1		-	-12	-5	-
Direct results	56	56		0.9%	47	24	-49.8%
Indirect results	30	8		-74.0%	20	9	-56.7%
Net income	86	64		-25.1%	67	32	-51.9%
Non-controlling interests	-5	-26		-	-4	-13	-
Net income group share	80	38		-52.8%	63	20	-69.0%

1. Restated figures due to: a) IFRS 16 accounting standard; and b) the discontinued operations namely Berg from Sonae Fashion and the sale of Saphety in Sonae IM.
2. Equity method results: includes direct income by equity method results from Sonae Sierra statutory accounts, income related to investments consolidated by the equity method (mainly NOS/Zopt and ISRG) and discountinued operations results.

During 2Q19, there was no change in Sonae's reporting method. As in the first quarter, historical figures were restated to include both the new perimeter for Sonae MC and the adoption of the IFRS 16 accounting standard. Sonae Sierra's accounts have begun to be consolidated line-by-line since 4Q18, following the acquisition of a 20% stake in the business.

In 1H19, Sonae's statutory figures showed a Turnover increase of 11.0% y.o.y. to €2,985 M, benefiting from strong growth at Sonae MC (+€198 M) and Sonae IM (+€21 M), and also from the consolidation of Sonae Sierra's statutory revenues (€86 M)1. Even without Sonae Sierra's consolidation, Turnover would have increased by 7.8% y.o.y.. Underlying EBITDA grew from €195 M in 1H18 to €243 M in 1H19, underpinned by the positive performances of Sonae MC, Sonae Fashion and Sonae FS, as well as from Sonae Sierra's consolidation. On a comparable basis and excluding Sonae Sierra's contribution, Sonae's underlying EBITDA would have grown 10% y.o.y..

The positive underlying EBITDA evolution, coupled with a growth in the equity method results of +€25 M, more than offset the negative non-recurrent items, and led EBITDA to increase +10% y.o.y. to €284 M. The increase in the equity method results was driven by the full consolidation of Sonae Sierra and also by the clear improvement of ISRG's performance, which had a positive impact of +€6 M y.o.y..

All in all, net income group share stood at €38 M, down from last year's €80 M, mainly due to the capital gain registered in 2Q18 related with the Outsystems transaction.

1. Please see additional information on page 10

Sonae _ 1H Results '19 | 03

Sonae capital structure

Sonae net invested capital

Million euros	1H18(1)	1H19	y.o.y.
Net invested capital	4,309	5,956	38.2%
Shareholders funds	2,022	3,008	48.8%
Net Debt	1,324	1,755	32.5%
Comparable	1,324	1,193	-9.9%
Impact from acquisitions & disposals	-	562	-
Lease liabilities	963	1,193	24.0%

(1) Restated figures according to IFRS16 accounting standard

Gearing evolution

(pre IFRS16)

In what concerns the capital structure, once again, and on a comparable basis, Sonae's net debt reduced by €131 M vs 1H18, to €1,193 M. Considering the changes in the portfolio over the last few months (namely the equity investments in Sonae Sierra and Arenal), total net debt reached €1,755 M and the group's gearing now stands at 0.5x, decreasing 0.1x versus 1H18.

Sonae's cost of debt remained stable at 1.3% during 1H19 and the average maturity profile increased to above 4 years. Excluding Sonae Sierra, Sonae kept its practice of being fully financed for the coming 18 months and with a stable cost of debt of 1.0%.

Sonae MC	NOS
Fin. net debt/und EBITDA	Fin. net debt/EBITDA
(pre IFRS16)	(pre IFRS16)

Sonae Sierra	Holding
Loan-to-value	Loan-to-value

Sonae Capex

Million euros	1H18	1H19	y.o.y.
Capex	151	189	25.3%
Sonae MC	109	155	42.7%
Worten	12	10	-14.8%
Sonae Fashion	12	6	-45.9%
Sonae IM	13	17	32.4%
Sonae FS	< 1	< 1	-30.1%
Sonae Sierra	0	5	-

Sonae _ 1H Results '19 | 04

All the companies in the portfolio maintained conservative

balance sheets. At the end of June 2019, Sonae MC posted a 2.3x financial net debt/underlying EBITDA, -0.4x when compared to 1H18. NOS registered a financial net debt/EBITDA of 2.0x, in line with 1H18. And Sonae Sierra's loan-to-value decreased to 29%. At the holding level, loan-to-value stood at 14%, impacted by the acquisition of the 20% stake in Sonae Sierra.

Total capex reached €189 M in 1H19, an increase of 25.3% versus 1H18, largely explained by M&A capex both from Sonae MC (Arenal) and Sonae IM. In what concerns expansion capex, Sonae MC continued its fast-paced programme with the opening of 30 new company operated stores, which include 5 Continente Bom Dia (proximity format).

Sonae operational performance by business

Sonae MC

Turnover and

underlying EBITDA margin evolution (€M; %)

Worten

Turnover and

underlying EBITDA margin evolution (€M; %)

Sonae MC recorded once again a solid top line performance in 1H19, with Turnover surpassing €2 bn, a 10.0% y.o.y. increase. This growth was underpinned by: (i) strong LfL evolutions in all segments (total of 3.9% in the 1H and 6.7% in the 2Q), mostly fuelled by increased volumes, (ii) continued expansion efforts, with the opening of 30 new company operated stores (including 5 Continente Bom Dia stores and 1 Continente Modelo store), and (iii) the Arenal acquisition (with a total of 42 stores operating at the end of 1H19).

In what concerns operational profitability, Sonae MC's underlying EBITDA amounted to €207 M in 1H19, increasing €26.4 M y.o.y.. Following the adoption of IFRS 16, Sonae MC completed in the second quarter the review of additional transportation lease agreements under this new standard, with retrospective impact on the income statement and on the balance sheet since the beginning of the year. Excluding this effect, underlying EBITDA margin performance in the 1H was broadly in line with the previous year.

(For additional information please see document published with Sonae MC 1H19 Results at www.sonae.pt)

Worten reached €473 M of turnover in this semester, in line with last year. This is a result of a y.o.y. increase in sales in 2Q19, despite the 2018 sales boost of image categories (namely TV sets) driven by the Football World Cup. In line with its digital-enabled, omnichannel strategy, Worten's marketplace is evolving well, reinforcing the online sales growth, which stood above 50% in 2Q in Portugal.

Results in Spain Mainland during 1H19 stood below expectations. We have decided to implement an ambitious program targeted at improving profitability in this geography in the short to medium term, which comprises a reduction of local head office costs and closing a selected number of loss- making stores already in 2019.

Top line performance, coupled with continued efforts towards digital transformation, led to an underlying EBITDA of €15 M.

Sonae _ 1H Results '19 | 05